They Really do Ring a Bell
Nov 17, 2014
In early October I wrote a piece talking about Black Swans. I put in some charts of the price of silver from July 1st until early October along with a chart of the dollar index. As I showed in the article, if you invert the silver chart, it’s identical with the chart of the dollar index. In fact, you could put in a chart of the Yen and the Euro from July 1st and compare them to charts of gold or silver and
they are identical. What that means is that gold and silver didn’t go down if you compare them to the Yen and the Euro. Gold and silver went down only in comparison to the dollar.
With the dollar index having gone parabolic, I was under the belief that we were having a simple third test of the lows for gold since June of 2013. Indeed, the chart of the XAU over gold showed the sentiment at a new low. Every time that has happened since June of 2013, we have had a good rally off the bottom.
Then the Japanese threw a monkey wrench into the works at the end of October when the Bank of Japan announced they would increase QE by an astounding 25% to 80 trillion yen. The Yen, gold, and silver tanked. The dollar index and Nikkei soared.
Capitulation set in as long patient gold bugs threw in the towel. You may safely think of it as a bell ringing at the bottom.
I wrote about a new gold mining company in Colombia over three years ago named Red Eagle (RD-V) that went public very near the top of the gold market. I visited their primary project in Colombia called Santa Rosa literally days after they went public.
The company has made amazing progress. From the 1st drill hole in a project that had never been drilled to the feasibility study took about three years. Red Eagle spent over $55 million in 45,000 meters of drilling. They applied for their mining permit and received it in August of 2014. They expect their final environmental license in Q1 2015 and production in Q1 of 2016.
The company released an updated 43-101 feasibility study in October of 2014 showing some incredible numbers. With a base case of $1300 gold, they have an
after tax NPV of $104 million, an eight year mine life at an average of 50,000 ounces per year and an IRR of 53% with capex paid back in 1.3 years. Total all in cost will be around $763 per ounce of gold.
In early 2014 with the shares trading at a dismal $.20 or so on January 1st, an unpaid German letter writer named Oliver Gross began to tout the Red Eagle story as his #1 pick. His followers managed to lift the shares to $.41 by March of 2014. Then the shares declined with the rest of the market into late October.
(Click on images to enlarge)
DING DING DING
When the Japanese announced QE forever in October, Gross told his followers to dump all their resource shares. In his words,
Comments by Oliver Gross on Oct. 30:
The last days for precious metals miner have been just shocking. The most important gold and silver miner indices and ETFs broke their support lines and hit new multiyear lows. Just imagine that majors and multibillion-dollar companies like Yamana Gold and Goldcorp had double-digits losses during the last trading session.
I had to liquidate the whole portfolio today to protect my subscribers; that is my responsibility. The market letter is owned by the publishing house and it has special risk and money management rules. The losses during the last weeks were so big for many subscribers that I was forced to react, which led to complete, temporarily liquidation of all stocks in the market letter. It was one of the toughest decisions in my career to dump some of the best-in-class stocks at multiyear lows with depressed sentiment when fundamentally nothing has changed. But the market can be just brutal and it isn't smart to fight against all odds.
If Gross had been one of the very lone writers to see a top in silver in late April of 2011 or in gold in September of 2011, he would have gone down in history for his accuracy. But. . . .
DING DING DING
They really do ring a bell.
If you really want to know what is going on in a public company, watch what the insiders are doing. When Gross told his readers to dump their shares, they did and dropped the price by 33% in a day. The CEO of Red Eagle immediately stepped up to the plate to buy shares. In the next two weeks more insider buying ramped up and as of the 14th of November the shares were back to where they were in October.
Of course, since I have been to the project twice since 2011, I know that Ian Slater and Bob Bell are holding out on investors. You have to have been on site to get it. This is an area that has been mined for 400 years since the Spanish first discovered it. There are over 1700 adits the company has mapped at surface from prior mining. There are over 100 areas where the artisan miners were mining placer gold at surface. They have a whole lot more gold than the 400,000 ounces they show in reserves.
a lot of time walking around the project and seeing it first hand. There are adits everywhere, the gold is high grade and a monkey could figure out where the structures are. The expansion potential is very high.
For the Phase 1 mine and mill construction on the San Ramon property, the company needs to raise $74 million. That will provide for 1,000 Tonnes per day and an average of 50,000 ounces a year for 8 years. Phase 2 will require an additional $14 million capex to expand production to 2,000 Tonnes per day.
The numbers for Red Eagle are outstanding and will get better. The management team is as solid as any I know in South America. They will raise the money for construction and will be in production in early 2016.
Red Eagle is an advertiser. I was never able to participate in any of the private placements but after I talked to Ian Slater this last week, I did go out in the open market and buy some shares while they are still on sale. I am biased. Do your own due diligence.
And for those who want to predict new lows for gold I want to remind my readers that they were the same guys calling for new highs in September of 2011. It is the nature of bottoms that everyone wants to predict lower prices. It wouldn’t be a bottom without them.
For one of the best articles I have seen recently on gold please read this brilliant piece by Pater Tenebrarum where he shows the bullish consensus on gold is an all time low and think
DING DING DING
One writer pointed out that the Bullish Consensus on silver was 96% in late April of 2011. That was an all time record high. Literally it was
DING DING DING
They ring the bell at tops, too. You just have to be listening.
Red Eagle Mining
RD-V $.26 (Nov 14, 2014)
73.9 million shares
Red Eagle website